Debentures or bonds are essentially debt instruments which enable the
holder to earn a fixed rate of return, fixed maturity period. An
additional benefit on these instruments is relatively lower capital
uncertainty. In India, debenture can be of both types i.e. secured or
unsecured. There are many types of debentures available in the market:
(a) convertible,
(b) non-convertible,
(c) partially convertible,
(d) redeemable,
(e) perpetual,
(f) registered,
(g) bearer,
(h) rights,
(i) callable, etc.

These
can be either secured by a mortgage on the assets of the company or
unsecured. The redeemable debentures have to be repaid by the company at
the end of a specified period, say, 7 years. The debentures are tradable
on Stock Exchanges, if they are quoted. More recently, convertible
debentures have become popular, as they can be converted into equity after
a specified period and at a specified price. In this case, debt capital
becomes ownership capital after a specified period. These debentures may
be partly or fully convertible into equity, as per the terms of issue. The
non-convertible portion (called khoka) is also traded in the market.

The
proportion of debentures, both convertible and non-convertible, to total
capital issues increases during boom years, mainly due to the popularity
of conversion and due to the creditworthiness of the companies floating
them.